Hon. Members will find the amendment rather hard to spot. It is to insert one word, “wholly”, and I want to explain why that is important and give some of the background to how the clause came about in the first place. There is no universal agreement on the need for the clause. After all, it exempts certain providers of certain tariffs from conditions that elsewhere will apply as far as the price cap is concerned. The providers exempted under subsection (2)(b) are those that appear to the authority to support the production of gas or the generation of electricity from renewal sources. There are a number of arguments about whether an exemption should be in place; my view is that there should be.
We heard in the evidence session this morning about suppliers of renewable tariffs ensuring that what they source is genuinely from renewables. They might undertake power purchase agreements from independent producers so that they can guarantee that their tariffs are sourced directly from those producers or, under certain circumstances, they might have their own supply of renewable energy because they have themselves invested in wind farms or other forms of such energy and therefore know that their renewable energy is wholly such. Under those circumstances, those companies—there are a number of them—inevitably incur rather more complicated arrangements in the delivery of their tariffs and in guaranteeing that these really are what they say they are, wholly renewable tariffs delivered to customers on that basis.
When I asked Octopus and Bulb this morning whether there was a need to tighten the definition of renewable energy, they both agreed that there was. They saw it as a way of the big six getting round the cap. So does my hon. Friend agree that there needs to be a tightening of the definition?
Yes, I certainly do. If one first agrees that this particular provision should be made, the question of tightening it is quite an important aspect of the Bill.
I am sure that hon. Members will be aware that the draft Bill, when it first appeared, had a much wider and I think much less satisfactory definition of the circumstances under which an exemption could be made. The Select Committee that considered the draft Bill and produced its excellent report singled out this particular clause as one that should be strengthened, as my hon. Friend the Member for Enfield, Southgate has pointed out. It thought it should be strengthened on the basis that a number of stakeholders viewed the Bill as then drafted as allowing for
“unscrupulous suppliers to game the system and avoid the cap by moving customers on poor-value tariffs onto loosely-defined green tariffs.”
“The Government should work with Ofgem to strengthen the definition, standards and checks for electricity tariffs with environmental claims so the system cannot be gamed in this fashion and undermine the success of the cap.”
That concern was absolutely right. Regrettably, it is the case that throughout the present tariff offer a number of tariffs are in place that purport to be green tariffs, but when we drill down to what they consist of, they are pretty much not green tariffs. They may have a part of renewable energy in their make-up. It may be claimed that the company is advantageously purchasing renewable energy as part of its overall purchase arrangements, but of course we know in terms of today’s energy mix that it is fairly difficult to rigidly remove oneself from purchasing any renewable energy in the portfolio of purchases for tariff purposes.
I have huge sympathy with the point that the hon. Gentleman is making. My concern is that we risk letting the perfect be the enemy of the good. There may well be tariffs that are 95% or 99% green that really should be supported, but would not be under his amendment. The wider issue of greenwashing is a matter for the regulator more generally, rather than specifically a matter for this Bill.
I take the hon. Gentleman’s point. I have tried to think about this point precisely on those sort of lines. It is difficult, in looking at such tariffs, to see the circumstances under which a company offering not a wholly renewable tariff is protected from a slippery slope—from going right down that slope and saying, “Well, as long as there is something in there that is renewable, we can call it a renewable tariff.”
I was about to make a point about the circumstances under which companies trade. Normally, because of the extent of renewable penetration into the energy system, most companies will come across a renewable supply as part of their trading arrangements. As I said, it is pretty difficult to avoid that, so we can imagine how relatively easy it is in principle for someone sitting in a company boardroom to say “How can we produce a tariff that looks like a green tariff but does not give us any sort of problem in producing it? Why don’t we just set aside what we have come across by chance, as far as our energy supply is concerned, say that it is our green purchase and put it in a tariff? Then we will have a green tariff and will be fine.” No work would have been done to distinguish that tariff from anything else, and the company would have no intention of doing anything within their tariff offer but trade in the ordinary way. That is a worry.
This is an important area of the Bill. Does my hon. Friend agree that there is a requirement on energy companies to source renewable energy—quite rightly—and those costs are already spread across all bill payers? Why should there be a premium on top?
The point that my right hon. Friend makes is, I think, taken into account by the circumstances that now apply across the board for energy sourcing. As she and I know, having talked about this for years, the process of the renewables obligation did impose a particular obligation for a proportion of energy purchased to be green. Then there was a system of trading those obligation certificates. Those people not directly purchasing green energy would have to purchase certificates, which could be traded from those who had actually traded in green energy in the first place, so that those involved had, in one way or another, carried out their obligation. The overall design of the renewables obligation system was to encourage the production of green energy, because the beneficiaries of the certificates when they were traded in cash would be the producers. That was a system that very much incorporated in it an incentive to trade in green energy in the first place.
Now, of course, the renewables obligation is no more. It continues as a ghost trade system and will continue on a declining basis, I think, until 2027, but as of March 2017 no more renewables obligation certificates are being issued. They are being replaced by the contracts for difference system, which does not impose an obligation to purchase green energy in the same way as the renewables obligation system did. The prospective system does not, as my right hon. Friend suggested, provide a universal underwriting of green energy production. She is right, of course, that the system overall encourages renewable energy production, but not in the same way as the renewables obligation.
I do not think that that particularly detracts from my right hon. Friend’s fundamental point, but it puts us in a position where we can properly consider the idea that a number of energy companies might accidentally, as it were, purchase green energy that does not, otherwise, have an obligation attached to it, and introduce it as part of a green tariff that is not really a green tariff. I suggest that companies wholly in the business of producing renewable energy, or those that produce it from their own sources or sources guaranteed through a power purchase agreement, or something similar, with the operator, are in a different category. I want to emphasise that difference with respect to the purpose of the amendment.
I think the point made by the right hon. Member for Don Valley was really about the existence of clause 3(2)(b) in the first place. I have a lot of sympathy with that. I think it is unhelpful to mark out green tariffs as a premium product—that is counter-intuitive to the wider effort we are making. However, if clause 3(2)(b) must remain, I am not convinced that the amendment tabled by the hon. Member for Southampton, Test is necessary. I encourage him to consider again whether where we all agree is that Ofgem might take a much more robust view on the practice of greenwashing and that that is the actual challenge that we want the regulator to close with, not necessarily an amendment to the legislation this afternoon.
I would say that the essential point is how far up the beach and close to the walls the greenwashing actually goes. Can we conversely say that we can put greenwashing into a particular box and say “That looks like greenwashing”, but as we move up the scale of more and more renewables in the system, the greenwashing ceases and therefore can we say that this really is a renewable product and is something we can apply special exemption arrangements to? That is the nub of the debate.
I would like to share with the hon. Gentleman the very words of Dermot Nolan in relation to this issue. In evidence to the Select Committee, he said in answer to a question about how it is decided whether energy is green or not:
“There are ways to determine the source of energy as to whether the generation of energy by that company has occurred in a sufficiently green fashion, which we have a definition for already, although not a perfect one. We would make specific requirements of companies on that. We would audit them and we would police it. If they were not compliant, we would tell them they must immediately withdraw the tariff or face enforcement action.”
That answer and the agenda that Ofgem is following make the amendment redundant.
That is a reasonable and honestly held opinion about the extent to which it is possible easily to distinguish when greenwash is not greenwash and the point at which an energy company, even with a partially green tariff, puts in something that is honestly green and not something that they have just cooked up because they happen to have purchased something that has an element of traceable green energy in it.
Even under the circumstances that the hon. Gentleman mentions, it would be fairly difficult for Ofgem to make easy distinctions when it came to what it was doing about tariffs that could be jumbled up with a lot of brown energy but nevertheless be claimed to be at least partially green.
I have tried to think this through and consider how we might be able to make honest citizens of those companies under such circumstances. It is possible to argue that even if a company accidentally buys green energy, if it is genuine green energy, then yes, it has sourced green energy. However, the bar needs to be set rather higher.
The hon. Gentleman’s amendment uses the word “wholly”. In my view, “wholly” means that 100% of the energy would be renewable. To me, that is wholly unworkable. I want more consumers to get more choice. If they really wish to buy more renewable energy packages, they can do that. I would also like to see green tariffs that encourage smart consumption—smart appliances that switch on and off at peak times, for example. Those could also be bundled into a green tariff.
Furthermore, as more and more people want to buy renewable packages, what happens at a peak time on a very, very cold day when our renewables cannot cover the amount of consumption those consumers need? Would they have to be switched off and have no energy at all? Would they not be allowed any back-up supply? “Wholly” is not the right word.
I hope the hon. Lady will forgive me for saying this, but she makes a rather good case for my amendment. Let us consider circumstances, such as those she mentions, in which insufficient renewable energy is generated on a particular day to “go round”. What we mean by “go round” is that renewable energy, in most instances, is variable. If we look at our little National Grid—
The app, to see what is being generated on any particular day, we will see that it varies from 4% or 5% to 20% or more, depending on the circumstances, so it certainly is true that there will be a variable amount of renewable energy to go round.
However, that is not the point as far as renewable energy suppliers who contract to supply wholly from renewable sources are concerned because they will provide themselves with power purchase agreements or will own their own generating capacity and guarantee that, come what may, what the consumer gets as a result of their tariff is renewable. In a sense, they will have pre-empted the “not enough to go round” point by guaranteeing with their arrangements that there is. I suggest, precisely for the reasons the hon. Lady set out, that that can be problematic for those companies. Nevertheless, that is what they guarantee as part of their tariff.
As far as brown energy companies that want to do a bit of greenwashing are concerned, the hon. Lady is absolutely right that if there is not enough green energy to go round they remove the portion of renewable energy from their supply and the tariff becomes browner, even though they say it is partially green. That is precisely what the amendment seeks to avoid, by making the starting point that the exemption applies to tariffs that are clearly wholly renewable and about which it can be said without a doubt that that is what they are—no messing about. That is why they should be exempted.
Further to the point made by my hon. Friend the Member for Chelmsford, I am a little confused as to why the hon. Gentleman would add “wholly” when he admits that that is a virtually impossible state for companies to be in at present. Would the amendment not make the Bill have a null and void section, if the word “wholly” was used when that was unachievable?
Forgive me, but I was trying to distinguish between other companies and those that guarantee to provide a green tariff come what may because they have either their own supplies or a power purchase agreement with a supplier that guarantees to supply them come what may with renewable energy.
Let us remember that not all renewable energy is variable. Not all renewable energy is reliant on a variable supply being continuously variable. I have recently been to see a number of plants, one of which was a large solar farm close to the Minister’s constituency, which had a large battery installation next to it. The power produced from that source is continuous even though the solar is variable because of the existence of the battery. If a company offering a wholly renewable tariff has a power purchase agreement with that producer, it will have a reliable source of renewable energy come what may, because that is the contract it has made. That is essentially the contract that those companies are undertaking on their renewable tariffs.
Is that not disincentivising the green company from growing? It knows that if it takes on more consumers, it cannot 100% guarantee to fulfil their needs on a cold day or in a cold snap. That would cap the green market, which is contrary to what we want to do—we want to encourage it to grow.
I was about to reply to the hon. Member for Chippenham, who suggested that the amendment might be superfluous because, as she put it, if companies cannot supply from renewable energy in any event, putting forward an amendment to require an exemption only where a supplier wholly supplies renewable energy might be a step too far for the energy market.
The amendment sets the bar fairly high, but not impossibly high. Companies that genuinely supply renewable tariffs have effectively pre-empted the variability of the market by securing reliable renewable supplies one way or another in advance, because of their power purchase agreements or their individual ownership, so that they can reliably offer a renewable tariff.
On a wider basis, it is true that what we want is to have as much renewable energy on offer as possible, as a general policy good thing, but that amount on offer will necessarily vary, although as I think hon. Members can see—the Minister has mentioned the nice app that we both watch regularly—those numbers have come up enormously in recent years.
To all intents and purposes, to have no renewable energy—even on a pretty windless day, the sun might be shining so there is a lot of solar—there would have to be a day in which no wind was blowing anywhere, there was an overcast sky and possibly rain. There would be no wind even on the North sea, or on the other side of the country—those prevailing winds coming in from the Atlantic would not be doing the business for the farms on the western side and in the approaches to the British isles. Subject to ministerial agreement soon, there might also be the Swansea tidal lagoon arrangement—provided the tide is coming in or going out, which it normally does—to provide a pretty reliable source of renewable at that point too.
Objectively, therefore, we are no longer in a position where the sort of circumstances that some hon. Members have suggested might be the case will be the case. However, renewable energy generation is still variable to some extent. That is the point that I essentially want to make: it is important that we distinguish between those companies that know they can genuinely offer a wholly renewable tariff, and can be audited properly as doing so, and those that may offer a part-renewable tariff, but cannot really be audited as to what the constancy of their supply is.
That is what I think we need to do to strengthen marginally what I freely acknowledge to be a much-strengthened clause anyway, compared with how that clause stood before it was looked at by the Select Committee. The Minister has done a good job in responding to the Committee and in ensuring that within that definition there are much clearer lines as to what is renewable and what is not, and what is a renewable tariff and what is not.
I am suggesting a small sparrow on the shoulder of eagles—an additional point to make the provision absolutely right. I hope that the Minister will be able to accept the amendment in the spirit in which it is intended and as an assurance that we get the Bill completely right. That is the beginning and end of the purpose of this amendment. I hope that it can be accepted on that basis.
It is a pleasure to serve under your careful stewardship, Ms McDonagh.
I find myself in an interesting position. I completely understand what my hon. Friend the Member for Southampton, Test is trying to do with his amendment. The sense I get from the interventions so far is of common agreement, and that is also the response of the Select Committee. I am glad to see on page 24 of the Select Committee’s report that I have a footnote—I have never been a footnote before, and I am so proud. Good Energy and I, and others, made a submission to the Select Committee about why we have to be very careful about gaming in moving forward in relation to the price cap.
My hon. Friend has clearly outlined the concerns that we have—and share with others across the House and those outside who have made representations—about the danger of people trying to use green as a way to avoid providing fair prices. Let us be clear: we are talking about the sticky customer base—those people who, year in year out, find that their energy bills go up. The CMA review and others have found how people have been overcharged for a number of years now, and there has been much discussion in this place about that. I totally understand my hon. Friend’s intent in trying to introduce “wholly” as another way to separate those who might game the system from those who are in all good faith seeking to invest in and buy 100% renewable energy.
My only problem is that I feel that we want to make this legislation as simple and straightforward as possible, given that there is also agreement that this is a temporary measure for a period, which will hopefully allow people to get a fairer Bill for their energy and not be overcharged, and in which we and the Government can look at what further reform might follow from this in the future. My hon. Friend and I have spent many hours discussing that and we think there is much that could be done—but that is not for today’s debate, Ms McDonagh.
As someone who very much supports renewable energy, not only for our electricity and power supply but for our heat supply as well, I am not sure of the evidence. I may be convinced during the passage of this Bill that a premium price for green energy stacks up. I might be wrong, but I am not sure it does stack up. I apologise to colleagues on the Committee that I was not able to be here this morning, but I have read the written submissions—in particular, those from Bulb and OVO, who outline their concerns about exempting green tariffs from the legislation. A lot has been done to contribute to today’s situation, where the sort of energy that we want, for climate change and in terms of being innovative in the sector, has seen a huge reduction in overall costs and is therefore able to compete very effectively in the market.
In my mind, the right hon. Lady is not a footnote—she is a major chapter heading. I am enjoying listening to her speech, because it was largely as a result of the great cross-party consensus that we brought in the Act—and some pretty tough decisions, which she supported in her shadow Secretary of State role. That is why we are able to buy renewable energy at prices that do not require a substantial subsidy. That is why we all look forward to a situation where customers should not be charged a premium for that renewable energy source.
I thank the Minister for that intervention—I aspire to be a book. [Interruption.] A library, no less. Goodness. People will not be able to work out what the hell we are talking about in this Committee!
A lot has been done to drive investment in the renewable sector, and some of that is ongoing. My hon. Friend is quite right that the renewable obligation is coming to, if not its end, then close to it. We also have contracts for difference. We also have the renewable heat incentive for heat. A business in my constituency that produces green gas is a beneficiary of that. In lots of different ways, there continues to be support for renewable energy of one form or another. No doubt, should it get the green light, the tidal lagoon will also be receiving a contract for difference that will guarantee a price for what it produces over a number of years.
I would question my hon. Friend, and also the Minister—she has tried to tighten up the wording and, in this clause, has enabled Ofgem to step in, assess, consult and what-have-you—because I am still not convinced that there is any need for exemptions in the way they suggest. The more complicated things become, the more clarification that is required and the more points at which Ofgem is tied up finding a formula for what the price should be—we will have more discussions down the road about how often that should happen and the methodology for that—the more tasks we are giving it, which could lead to more confusion. The last thing I want, after all this, is a legal challenge that could stop the price cap being in place in time for the people we care about as they start paying their winter bills in 2018 and early 2019.
I hope we can think more about those issues. We may not resolve them today, but we should give them some more thought—I certainly will. I might be wrong about this, and I am happy to receive submissions and thoughts from others outside this place. For reasons of simplicity, and for the development of the renewable energy market and how it has been helped to get to a place where it provides cheaper energy today than our fossil fuels, it is still worth considering whether any kind of exemption is warranted in the Bill.
It is a pleasure to serve under your chairship, Ms McDonagh. I will briefly follow the contributions of my hon. Friend the Member for Southampton, Test and my right hon. Friend the Member for Don Valley with one simple point.
I should say, for context, that we have obviously broken out into violent agreement—that is always good—not just on the need for the legislation, but on what it is for. It is not the end state that we seek, but a key part of getting us on the journey there. We all want the market and the providers to use this time, whether the full five years or not, to change practices so that, at the other end, the consumer gets what they need. There is a lot of enthusiasm for that.
With that in mind, as we look at each and every line in the Bill, we should think about how the individual words fall and the unintended consequences that might arise from a superfluous word or a missing word, because we know—and we would expect nothing less—that there will be conversations in the big companies about the different ways to approach the next five years. The choice will be whether to genuinely change or to game the system. We have to be mindful of that and look to close down every possible opportunity to game the system, so as to be clear that this is legislation to drive proper change. It is a short-term cap, but will lead to a long-term benefit.
The amendment does that. It takes up the cudgels from what the Select Committee said. It is proportionate, simple and easy to understand. I understand that delivering what sits behind it may be complicated, but it sends a clear signal about what this Parliament values and I support it.
One little word has provoked a substantial and excellent debate. There is a genuine sense in the Committee that we all want to achieve the same thing: companies not being able to game the system, and tariffs that deliver for consumers and do what they say on the tin, so that if they say they are renewable, they are actually renewable, not just a package of greenwash. That is why I genuinely feel that the crowdsourced approach to legislation can be very good. I pay tribute to the Select Committee process, once again ably represented by my hon. Friend the Member for Stirling, who helped us to focus on the issue. I was pleased to hear several hon. Members comment that we have tightened up the wording accordingly.
We are wrestling with questions around gaming and what a green tariff looks like, and this question of “wholly” or “in part”. All those will be addressed by two processes, which I will talk briefly about. First, as the right hon. Member for Don Valley said, we have quite properly tasked Ofgem with looking at the whole issue. I think I am right in saying that it has never been asked to review the whole suite of green tariffs in the market and opine on whether they are any such thing.
A co-benefit of the whole process will be understanding what is out there, whether it is wholly, partially or not at all green, and what the price premium for some of those products is. I was a very early Good Energy customer, over 10 years ago, and—
I am afraid that, unlike the hon. Lady, I came off it, because it was so expensive—I apologise if she thought we were going to have a nice bonding moment over our green tariff. By the way, having heard the evidence, particularly from some of the more nimble companies coming in, I have every intention of looking very closely at changing my tariff again. However, the point is that the world has moved on. As the right hon. Member for Don Valley pointed out, prices have dropped and there is a question as to why we should be paying a premium tariff.
I would like the amendment to be withdrawn today—albeit on the basis that we do not yet have a brilliant fact base—but the offer I would make to every member of the Committee is for my team to put together a list of all the green tariffs in the market already and perhaps to ask for some evidence for to what the price premium is, so that when we look at this issue again on Report we will perhaps all feel a little bit better informed about this part of the market structure.
It is useful that the Minister will go away and make an analysis of the green products that are already on the market. I wonder whether she might also, with the evidence from Octopus and Bulb ringing in her ears, go away and ask the Department to go for just one more lap on whether or not this exemption is necessary all together, or whether it might do more harm than good when it comes to promoting green energy and the way that consumers regard green tariffs.
I am sympathetic to my hon. Friend’s point; he is extremely knowledgeable in this area. However, as we have been through, particularly in the draft scrutiny process, we genuinely do not want tariffs that customers actively choose to be on, and which support the welcome development of creating demand for the renewable market, to be captured, as it were. The hon. Member for Nottingham North made the point about unintended consequences, and that is why word-by-word scrutiny is so important. The BEIS Committee supported that view, and I think the legislation has been substantially improved by that process. I am therefore less inclined for the proposal to be withdrawn completely, but I want to talk a little more about the point that the hon. Member for Southampton, Test made. I have talked about publication transparency. To me, transparency—having Ofgem look at these tariffs, probably for the first time—is an important part of establishing that this is a credible part of the market.
I should say that although I have been a Good Energy customer for some time, we now have Bristol Energy—there is that conflict between being green and giving support locally; I think it has now introduced a green tariff. Another west country electricity company, Ecotricity—which has made a submission to this Committee very late in the day—is concerned that if the cap is introduced across the board before the green exemptions are looked at, its customers might find their bills having to go down when the cap comes in, only for Ecotricity to have to turn round and say, “Actually, we’ve got this exemption now. We want to put your bills up.” At the risk of delaying the introduction of the cap, I urge the Minister to make sure that the green exemption issue is sorted out at the same time that the cap comes in.
In standing up for her local enterprise, the hon. Lady pre-empts the second point I was about to make, which is that we will use transparency, but we will also use the Ofgem consultation process to do exactly that. Ofgem has to consult—it has to review the existence of these tariffs and understand what they mean—and it will have to do that as part of creating the cap, because it is a condition of introducing the cap that those exemptions are also carefully defined.
There is an interesting question. There is the transparency issue, there is the consultation issue, but the third thing is this: is it zero, 100 or somewhere in between? It will be explicit, I think, in conducting that analysis that Ofgem has chosen a level of what it thinks this level will be. I totally understand the point that the hon. Member for Southampton, Test made about us all wanting a world in which renewable energy is not intermittent. Indeed, I opened Clayhill solar farm, the country’s first subsidy-free solar farm, partly because it has managed to achieve on-site storage, providing both a better economic return and overcoming the problem of intermittency. That is all absolutely correct.
However, we are not there yet, and I was very struck by what my hon. Friends the Members for Wells and for Chelmsford and the right hon. Member for Don Valley said. They said that we want to be in a world where we are not stifling that evolution, but instead creating a demand for those tariffs in the future. It may be that, in setting out its view on what constitutes the tariff, Ofgem will say that it is 75%, or 95%, or 50%, and we will all have a chance to respond at that point. I absolutely accept the spirit in which the hon. Member for Southampton, Test tabled the amendment, but I fear, as we talked about, that it would have the unintended consequences of driving some tariffs out of the market and creating other perverse incentives.
I would like to put on record that the issue of gaming exercises us all. I have said this to the energy companies and I will say it face to face: if they think they should be spending their energies working out ways to game the tariff, as opposed to delivering better consumer value and service, we will put them on notice that that is exactly what none of us wants to see. That is a strong message that we have all delivered.
I am happy to provide more information to inform the debate. I have listened carefully to the excellent contributions, but I hope that the hon. Gentleman sees that this one tiny word creates a series of unintended consequences that perhaps weaken the cap and that he is therefore content to withdraw the amendment.
I take the Minister’s offer to give further and better particulars about green tariffs, including what they consist of, what the relationship between part-green tariffs and wholly green tariffs is, and what the cost is, as essentially a suggestion that the matter should at least partly be placed on the Table and might be revisited on Report, depending on what we see. It is an excellent suggestion and I very much welcome it.
To be clear, I am not inviting further amendments to the Bill—far from it. My hope is that during the passage of the Bill, with the joint messages we are sending out with cross-party support, the requirements for more information and transparency that will accompany the Bill’s passage—because they have to inform the tariff calculation—can only be helpful in this consumer market, even if they are not on the face of the Bill.
I understand that the Minister is not inviting further amendments—it is her job not to—but I can envisage a circumstance in which we have gathered all the information together and some things scream out from it that we might consider on Report. In which case, we should properly do that. On the basis of that offer, and presuming that the information would effectively be in the form of a sort of late evidence submission to the Committee and would go to all its members—
My intention is that we will write to all Committee members with the information.
That is great. It is a very welcome suggestion and wholly constructive regarding what we are trying to achieve with the amendment. On that basis, I wholly agree that it should be withdrawn. I beg to ask leave to withdraw the amendment.